Author: Ryan Strong
After returning a healthy 19.5 percent investment earnings
rate in the 2011 fiscal year, Occidental’s endowment took a hit last year, despite the college’s fundraising success and 125
anniversary. College officials note that the endowment has started moving in the
right direction the first quarter of this fiscal year, making up for some of
Vice President for Finance and Planning Amos Himmelstein attributes the endowment’s ups
and downs to a volatile economy that may persist for the next few years. The
trend started when the recession hit and Occidental, like almost every college,
saw their endowment shrink. In fiscal year 2009, the endowment went from
being worth approximately $356 million to worth $276 million. After moderate
growth in 2010, 2011 brought a high return that buoyed the endowment up to $340
million. But the college got hit hard in the second quarter of fiscal year
2012, and saw their investment return rate drop to negative .1 percent and
their endowment size erode by $10 million once operating expenses were drawn.
Colleges rely on their endowment, basically a very large
pot of money invested in the economy, to offset costs in place of higher
tuition or other fees. Institutions usually use about five percent of their
endowment or investment returns every year to infuse into their operating
budget. The larger the endowment, the more money that can be used for the operating budget. Occidental’s $330
million endowment is small when compared to peer institutions. That reality keeps the college heavily reliant on revenue from tuition and other fees, which limits the college’s financial ability to support new
President Jonathan Veitch has put an emphasis on expanding
Occidental’s endowment in order to position the college for sustained financial
stability for the long-run. Endowments grow through a combination of generous
contributions and smart investing practices that yield high returns.
Under President Veitch’s tenure, contributions for the
endowment as well as other fundraising priorities have steadily risen. They went from over $3 million in fiscal years 2010 and 2011 to approximately $5.5 million in
2011.fiscal year 2012. Overall, Occidental surpassed its fundraising goals during that year.
“We raised $20 million, which
exceeded our fundraising targets by $5 million. Most of that money went into
the renovation of Johnson and Swan Halls, but a good portion also went into scholarship
support, which is part of the endowment,” President Veitch said.
The contributions have come,
in large part, from several generous alumni. Steven Hinchliffe ’55 and Ann
Hoffman ’57 led the way with a donation of $3 million towards endowed student
More recent alumni, like Adam
Portnoy ’93, have also helped fund endowed student scholarships with large
contributions. Portnoy is a successful businessman, with a resume that includes
Founder of Surfree.com, Investment manager for World Bank Group’s International
Finance Corp, and President and CEO of the real estate company Reit Management
& Research. He credits Occidental with setting the foundation for his
that the influx of contributions, which he said partly can be attributed to the
125 anniversary, is significant for the college.
“It was kind of a historic mark for the college,”
Himmelstein said, of reaching $20 million in contributions. “I think it has to
do with stable leadership and I think a strategic plan helps.”
Ann Hoffman and Steve Hinchliffe would agree. “We’re very
impressed with the leadership of the college, and it gives us faith that the
standards of Oxy will be maintained,” Hoffman said in an “Oxy 125” Newsletter
distributed last November.
Himmelstein, with the help of the Board of Trustees and
Occidental’s investment management contractor, is in charge of making sure the
college makes wise investment decisions.
“We’re in a slightly defensive posture right now,”
Himmelstein said, noting that this is the sensible tactic for a relatively small endowment
in an uncertain economy. That means the college earns less on its investments
during good years but also loses less on bad years. For example, in 2011, the
college’s 19.5 percent return rate was about one percentage point less than the
average college endowment earnings that year. But, in 2012, the college’s
return rate of negative .1 percent was also about one percentage better than
other college’s endowments.
Himmelstein points to a longer term figure to argue
that the college’s endowment has outperformed other college’s in investment
earnings over the last 10 years. Numbers provided by the college’s investment
company, Cambridge Associates, show that Occidental has had a 7.6 percent
return on its endowment over the last 10 years compared to the average for peer
institutions of 6.5 percent.
Despite the better-than-average returns, Occidental has more work to do to fully recover from the recession and bring its endowment in line with peer institutions’.
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